Transcript Unit B Planning and Preparing to Manage a Small Business

Unit B
Planning and Preparing to
Manage a Small Business
Competency 5.00
Understand pricing, promotion, and market
planning.
Pricing
5.01 Develop foundational knowledge
of pricing
5.02 Employ pricing strategies to
determine optimal prices.
Basic Tenants of Pricing
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Businesses should set their selling prices at a level
that will cover expected markdowns and expenses.
Entrepreneurs should keep track of what others are
charging to remain competitive.
Most businesses are flexible: lower prices during
hard economic times.
Business owners set ceiling prices based on
consumer perception and demand.
Factors to consider when setting price
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Look at your target market – how do they
judge the value of your product?
Sales-oriented pricing objectives are meant
to increase total sales.
Some companies set selling prices low to get
market share as fast as possible.
The cost of raw materials helps determine
the selling price.
Pricing in The Product Life Cycle
Price skimming = start with
high price
Penetration pricing = start with
low price
Introduction
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One of two methods is used when introducing
a product.
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Price skimming = start high
Price penetration = start low
Growth
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Sales increase
Unit costs decrease
Adjust prices based on how you started.
Promotion costs increase.
Maturity
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Try to stabilize product price.
Look for new markets.
Make product improvements.
Decline
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Cut prices to stimulate sales or
To clear inventory.
Calculating Prices
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Break-even point = money from product
sales equals the costs of making and
distributing the product.
How many units will you have to sell?
How much money will you have to make?
Break-Even
(unit sales price)
Example:
Calculating how many units need to be sold
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A business has total fixed costs of $875,000.
Unit selling price (UPS) = $1200.
Variable cost per unit = $700.
$1200 – $700 = $500
$875,000
$500 = 1750 Units
Example:
Calculating how many
dollars it will take to break even
A business has total fixed costs of $875,000.
 Unit selling price (UPS) = $1200.
 Variable cost per unit = $700.
$1200 – $700 = $500
$875,000
$500 = 1750 Units
1750 X $1200 = $2,100,000
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Discounts
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Any amount subtracted from the list price.
Price X discount percentage = discounted
dollars.
Price – discounted dollars = discounted price.